Headwaters in MOUs to Develop Two Major Coal-to-Liquids Projects

9 August 2005

Conceptual IGCC CTL Process. Click to enlarge.

Headwaters Inc. has entered into two non-binding Memoranda of Understanding (MOUs) to develop coal-to-liquids (CTL) projects in Arizona and North Dakota.

Headwaters will act as the principal developer of two separate indirect coal liquefaction plants that will produce approximately 10,000 barrels per day of synthetic diesel and other liquid fuels, as well as electricity from an Integrated Gasification Combined Cycle (IGCC) power station. Plant expansions could increase output up to 50,000 barrels per day of liquid fuel production.

The other parties to the MOUs will participate as equity partners in the project development and will contribute coal resources sufficient to serve the lives of the respective plants.

Parties to the Arizona project include Headwaters and the Hopi Tribe. Parties to the North Dakota project include Headwaters, Great River Energy, North American Coal Corp. and Falkirk Mining Co.

Development of each project is subject to negotiation of definitive agreements, permitting, boards of directors’ approvals, project financing and other conditions. Headwaters estimates that design and construction of a facility, including the permitting, will take between five and seven years.

An indirect coal liquefaction process first gasifies coal and then converts the coal-derived syngas into fuels and petrochemicals using Fischer-Tropsch technology. There are several alternatives for this type of approach to coal-to-liquids projects.

Headwaters has also developed direct coal liquefaction technology that is currently being deployed or studied for deployment in China, India and the Philippines. (Headwaters is also active in the traditional oil refining industry in the heavy oil sector—i.e., using its technology to upgrade heavy oil to a more useable crude.)

As to the relative merits of the two types of approaches, an analysis done by Robert H. Williams and Eric D. Larson of the Princeton Environmental Institute, Princeton University on different methods of coal liquefaction, found that:

...although direct liquefaction conversion processes might be more energy efficient, overall system efficiencies for direct and indirect liquefaction are typically comparable if end-use as well as production efficiencies are taken into account.

It is shown that some synfuels derived via indirect liquefaction can outperform fuels derived from crude oil with regard to both air-pollutant and greenhouse-gas emissions, but direct liquefaction-derived synfuels cannot.

Deployment now of some indirect liquefaction technologies could put coal on a track consistent with later addressing severe climate and other environmental constraints without having to abandon coal for energy, but deploying direct liquefaction technologies cannot.

And finally, there are much stronger supporting technological infrastructures for indirect than for direct liquefaction technologies.

[...] Especially promising is the outlook for the indirect liquefaction product dimethyl ether, a versatile and clean fuel that could probably be produced in China at costs competitive with crude oil-derived liquid fuels. An important finding is the potential for realizing, in the case of dimethyl ether, significant reductions in greenhouse gas emissions relative to crude oil-derived hydrocarbon fuels, even in the absence of an explicit climate change mitigation policy, when this fuel is co-produced with electricity.

Although Headwaters has expertise in both direct and indirect coal liquefaction, it expects the initial coal-to-liquids facilities in the US to be indirect, primarily because of capital cost considerations.

Headwaters is also developing a 50-million-gallon-per-year ethanol production facility in North Dakota. Development of that facility, to be located on land adjacent to Great River Energy’s Coal Creek power plant, is continuing in partnership with Great River Energy. The facility—Blue Flint Ethanol—will be designed to access its steam, water and other ancillary services from the adjacent coal-fueled power plant.

The recently signed Energy Policy Act of 2005 (EPAct 2005) contains generous financial incentives for gasification-based projects under a variety of programs.

A $1.8 billion extension of the Clean Coal Power Initiative with a minimum of 70% of that amount set aside for gasification.

A Clean Power Projects title that earmarks a number of specific projects and project classes for loans and loan guarantees;

A Clean Air Coal Program which provides up to $1.3 billion in assistance for projects aimed at improving air quality, including IGCC.

Up to $800 million in investment tax credits for IGCC projects and $350 million in ITCs for manufacturing-based plants.

An “Incentives for Innovative Technologies” program is authorized to provide loan guarantees for gasification-based projects, including power, industrial and fuels manufacture.

Comments

While this technology may in theory produce less CO2 per unit of energy for liquid fuel and electricity co-production combined, the fact remains that the carbon was previously underground as coal. To be a winner the technology needs to be both cost competitive and to reduce overall CO2. This has to be proved.

Almost non-existent, aside from some developing projects. Since the US consumes more than 883 million barrels of on-road diesel per year, we can consider it 0% today.

The collapse of world oil prices in the mid-1980’s led to the abandonment of most of the pilot and process development scale coal-to-liquid facilities built in the United States during the 1970s and early 1980s to address the then-oil crises.

The US Synthetic Fuels Corporation (SFC), established by the Feds in 1980 to help fund development of both liquid and gaseous synthetic fuels technologies, was terminated in 1985.

It’s only been relatively recently with the consistent rise in oil prices that projects have picked up again. In addition to the two mentioned above, DKRW has started a project with projected output of 33,000 barrels of liquids per day. (That’s not all FT diesel, but we’ll assume it is for this.)

If we take the 33k from DKRW, and the optimistic 50k per day from the Headwaters projects, that’s a combined 133 kbpd— or some 48 million barrels per year five to seven years from now.

Assuming no other CTL projects come online (which they will), and assuming we kept our on-road diesel consumption at current levels (which we won’t), that’s still only 5%.

In 2025, 48 million tons of coal is projected to be consumed at coal-to-liquids plants, yielding 62 million barrels of fuel liquids and 34 billion kilowatthours of electricity.

Again, even keeping current levels of diesel consumption, you’re looking at a max 7%.

Researches are finding, though, that blending a synthetic FT diesel with conventional petroleum diesel delivers tremendously improved emissions characteristics. So from a clean-burning point of view, the FT diesel can have a larger impact blended than neat.

The country with the most ambitious CTL planning underway currently is, no surprise, China. Shenhua, China’s leading CTL group, is building a 37-million barrel plant due to come online in 2007—and have plans to expand their total capacity to 220 million barrels by 2026.